This week, the G20 finance ministers prepare for their meeting where they will, ostensibly, make the world safe from market outlaws. As a result, hot financial issues including executive compensation, bank regulation and offshore tax havens have been thrust into the international media spotlight. But it's worth shedding light on another one of the most important, but least understood, culprits of our financial meltdown: High-Frequency Trading

The recession has highlighted - more than ever before - the way that the financial rules of game always leave distinctive winners and losers. But over the past few years, the markets have become a kind of technological arms race, where survival of the fittest has become survival of the fastest. And nothing embodies trend this better than the rise of High-Frequency Trading.

HFT’s are computerized trading programs that make tiny per share profits. While this isn’t very much money at first glance, HFT’s together execute billions of shares a day, rendering it extremely profitable.

So what’s the problem? For starters, they’ve increased the amount of volatility and instability in the markets. High Frequency Systems claim to add liquidity. But they don’t really achieve this. Instead, a “group think” phenomenon occurs whenever there’s a major economic announcement, causing these systems to immediately place or pull thousands of bids and offers from the exchanges, not unlike a pool of fish frightened by a proximate shark. Furthermore, they regularly confuse other traders by issuing and then canceling orders at the same time.

Algo trading has also been accused of illegal front-running, using "flash trades" to read orders from rival banks, then jump ahead of these with lightning-fast speed.

If high-frequency traders are simply faster than other traders, and not illegally front-running, then this high-tech trading is no less legitimate than the use of the steam engine instead of a horse and buggy.

But many in the industry are curious as to how hedge funds and large banks like Goldman Sachs are making so much money so soon after the financial system nearly collapsed. High-frequency trading is one conceivable answer.

When I was a derivatives trader, I learned the hard way – by taking 4 to 5-figure losses – that the stock market is NOT made up of humans, but of highly sophisticated machines. Every time I bought or sold a security, I could sense the fight against these algorithms. To add insult to injury, these super-speed methods caused traders like myself to chase artificial prices. I would regularly see clips for 5000, or even 20,000 bonds disappear just after I’d put a trade on the WRONG way.

If I sometimes felt like someone was watching me, it’s because, well, they were. These computers could effectively bully slower investors into giving up profits and then vanish before anyone knew they were there.

While markets will probably go wherever they will go regardless of some machine, HFT’s are unfair because they transfer money from average investors to those with the fastest gadgets.

I would like to think that the FSA or some other regulatory body would be willing, or able, to pass laws that would protect the little guys from the high-frequency big fish. Unfortunately, in the City of London, money is king - even if some FSA official did have the motivation and intellect to regulate HFT, City bankers would just find new, creative ways to trade around it, because the smartest people will always rather loot the treasure than police it. And therein lies the problem with the City: the regulators are always a little too slow, always one step behind.

As long as the G20 ministers fail to find an answer to this problem, any new financial rules are just there to be broken.